Air Force Hopes Third Time is Lucky in Boeing-Airbus Tanker Contest

(MoneyWatch)  The Secretary of the Air Force, Mike Donley, Deputy Defense Secretary, William Lynn, and other officials made the rounds February 24 to discuss the Air Force's release of their final Request for Proposals (RFP) for the new KC-X aerial tanker. This is the third attempt to replace the Cold War-era KC-135 tanker fleet.

Hanging over all of the activity was the question of who would actually bid to provide the aircraft. The last attempt in 2008 saw Boeing (BA) and Northrop Grumman (with its partner, Airbus) submit proposals. The Air Force chose the larger Northrop-equipped, Airbus-made A330 tanker. After Boeing protested, the contract was tossed. Thus the new contest.

In 2002 the Air Force had attempted to lease more than 100 Boeing-made K-767 tankers but that ended in a serious ethics inquiry with Air Force acquisition chief Darleen Druyen going to jail along with the CFO of Boeing. It turned out that Druyen was being courted by Boeing with a job offer while she was negotiating the lease. Congress insisted on competition for the contract.

Now that the third try is out, Northrop may not bid on the program. In December the company informed the Air Force that without changes to the RFP to make it fairer to their larger, more expensive aircraft -- the one that won the last time -- they probably won't submit a bid.

Boeing's statement was also distinctly lacking in enthusiasm.

Boeing has begun the process of closely studying the details of the KC-X Tanker final RFP. Today's release of the final RFP is an important milestone for our Air Force customer...we are disappointed that the RFP does not address some of our key concerns, including Airbus' unfair competitive advantage derived from subsidies from its sponsor European governments ?€" subsidies that the World Trade Organization has found to be illegal and harmful to U.S. workers and industry ?€" and how fuel and military-construction costs over the life of the tankers will be factored into consideration of the competing bids.

Both companies have expressed concerns about the desire to use a fixed-price contract for the development of the aircraft and early production. The RFP was changed slightly to take into account significant economic changes. This would allow the winner to adjust their prices if a material, for example, increased price greatly.

The draft RFP appears to favor the smaller KC-767, which Boeing and its Congressional cheerleaders certainly hope that is the case. Because only two companies, Boeing and Airbus, are able to build this kind of aircraft the contest has become more then just buying needed capability for the U.S. military but also one of nationalism, protectionism and jobs in the struggling aerospace industry. The contest will be difficult and contentious; don't expect a decision until the end of the year.